Question

can someone show rhe steps with an example to why D is the correct answer ?

MC Qu. 16 If Tiger Toys faces a demand curve of P = 85... I Tiger Toys faces a demand curve of P = 85 -0.250 and a MC = ATC = 20, then the economic profits would be $130 O $6,825. $2,600 $4.225

Answer 1

Answer:

Given:

Demand Curve: P = 85 – 0.25Q

MC = ATC = 20

Total Revenue(TR) = P * Q = (85 – 0.25Q) * Q = 85Q – 0.25Q ²

Total Cost(TC) = ATC(Q) = 20Q

Profit(Q) = TR – TC

= 85Q – 0.25Q ² - 20Q

Now differentiating Profit wrt Q

dP/dQ = 85 – 0.5Q – 20 = 65 – 0.5Q = 0

Q = 130

P = 85Q – 0.25Q ² - 20Q = 65Q – 0.25Q ²

P = 65*130 – 0.25(130) ²

P = 8450 – 4225 = 4225

Hence Economic profit is $4,225

Option D] $4,225 is correct answer.

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